Cheniere Energy Partners' Sabine Pass Liquefaction unit has reached an LNG sale-and-purchase agreement with a unit of Gas Natural Fenosa, under which the Spanish company's subsidiary would buy as much as 3.5 million mt/year of LNG (equivalent to 448,000 Mcf/d of gas), the Houston-based company said Monday.
Sabine Liquefaction is developing a two-train liquefaction plant that would produce 9 million mt/year of LNG in the first phase of a project at the Cheniere Partners-owned Sabine Pass LNG terminal in Louisiana, which now imports LNG.
The deal with Gas Natural Fenosa means Sabine Liquefaction now has a contract capacity target of 7 million mt/year, which is expected to support construction of the first two liquefaction trains at the site, Cheniere said.
Under the agreement, Gas Natural Fenosa will pay Sabine Liquefaction a fixed sales charge for the full annual contract quantity and will also pay a contract sales price for LNG purchases based on the applicable Henry Hub index traded on NYMEX. LNG will be loaded onto Gas Natural Fenosa's vessels, it said.
Cheniere spokesman Andrew Ware said Gas Natural would pay a fixed charge of $2.49/MMBtu equivalent to the entire contracted amount of 3.5 million mt/year for 20 years, or about $454 million a year.
Gas Natural would not actually have to buy the LNG, but it would have to pay that amount whether it buys the LNG or not. If it does exercise its right to buy LNG, it would pay an additional charge of 115% of the Henry Hub price for the gas, with the additional 15% paying for gas that would be used in the liquefaction process, Ware said.
The deal has a term of 20 years starting from the date of first commercial delivery, and an extension option of up to 10 years. LNG deliveries are expected to start in 2016.
Only Gas Natural could say where it intends to deliver the LNG, Ware said, but stressed the deal has no destination clauses, so the Spanish company could deliver where it wants to without sharing any revenue with Cheniere. The contracted amount would represent 15% of Spain's annual LNG demand of 23 million mt/year, he said. Because the announcement was made late in the day in the US, Gas Natural officials could not be reached Monday.
On October 26, Cheniere announced it had signed a deal with the UK's BG for 3.5 million mt/year. BG's deal is similar to Gas Natural's deal, except that BG would only pay $2.25/MMBtu for the contracted amount. When asked why Gas Natural would pay more, Ware said: "There is an advantage to being a first mover."
Cheniere is targeting breaking ground in the first quarter of 2012, so a final investment decision on the project would be made before that, Ware said, adding that he could not give a more specific date for the FID.
He could not comment on whether Cheniere intends to restructure its significant existing debt, in the hundreds of millions of dollars, with the two export deals, he said.
Cheniere incurred the debt by building 4 Bcf/day of import capacity, even though it only sold 2 Bcf/d under long-term contracts, before it was clear that the US shale boom would greatly reduce demand for LNG imports.
In May, Sabine Pass won approval from the US Department of Energy to export domestic LNG.
Cheniere has said it hopes to take advantage of booming shale gas production in the US to export LNG.
CEO Charif Souki previously told Platts that Cheniere would sell the additional 2 million mt/year of potential LNG production from the first two trains on its own, through spot or short-term deals.
Ware said Monday Cheniere cannot market that amount under long-term deals because liquefaction trains are more efficient when colder, so it could not guarantee that amount of additional production throughout the year.
